The benefits of cloud computing for SMEs are numerous, but you should also beware of potential pitfalls. Photograph: RJH_RF/Alamy

The latest market forecasts for cloud computing are predicting 30% annual growth in the industry, as more and more people adopt the latest technology to store information in a virtual space. But cloud computing isn't just for data, you can also use it to run applications and software remotely, without being tied to one computer.

For a small businesses, outsourcing IT to the cloud lowers the need for specialist skills and frees managers to concentrate on the core business. It may cost slightly more than in-house IT, but this is often outweighed, as it can sometimes enable a small company to take a "big company" approach to problems by increasing efficiency.

The farming industry is a good example. Most farmers run relatively small businesses, but they still have to deal with data processing such as accounts and payroll. There is also a surprising amount of specialised information processing which is usually done by hand. For example, a dairy farmer owning 300 milking cows can spend 90 minutes per day creating manual data records and calculating production metrics. There is a cloud service specifically designed for dairy farmers that can relieve him of that. Similar cloud services are also available for poultry and arable farmers, and a multitude of other sectors.

Types of cloud services

• The first level of cloud services is called Infrastructure as a Service (IaaS). It works by providing virtual hardware, such as computers, raw processors, storage software platforms and so on. Instead of being physically based in an office, employees can access their data via the internet.

• The second level, known as Platform as a Service (PaaS), provides all the resources necessary for small business owners to create their own software and programmes. Usually this will include an operating system, programming environment, database, and web server. This can save you the cost of storing and investing in the hardware and software which would otherwise be necessary.

• The third level available is Software as a Service (SaaS), which provides you with software and programmes which are available and ready to use. You can run them remotely, without having to go through lengthy installation processes and worry about how your hardware will cope with the application.

While IaaS and PaaS will have some value to businesses large enough to have their own computer installations, it is SaaS, with its access to applications, that provides most value to small businesses.

Potential pitfalls

Data security

When it comes to embracing cloud computing, the main worry on most people's minds is security. By accessing cloud services over the internet, you are sharing them with people and organisations that you don't know, possibly including business competitors.

Is your data safe? The answer, in most cases, and with reputable cloud suppliers, is yes. Indeed, the level of security achieved by a good cloud supplier, with in-house experts that follow the latest developments, is generally much better than most small businesses can manage.

Controlling your information

The next issue that comes up is control, as your data is held on someone else's system. It can be hard to get your head around the fact that you don't know which computer – or even which country – it is stored on. So to what extent do you still own it?

It's an area where you need to tread carefully. You may be subject to different laws depending on where the data is held – particularly data containing personal information, such as employee records. You may be in breach of contract with your customers if data is disclosed or withheld by your cloud supplier, and you could face a damaged reputation in such cases. Different cloud suppliers have different contractual terms which you should be aware of as they might impact your ability to fulfil your legal, contractual, and moral obligations.

Flexibility

Finally, some people are concerned by the fact that it is difficult to "mix and match" cloud services. Cloud isn't like the internet in this respect. You can plug in a new internet router or change your internet service provider (ISP) without too much hassle because the internet is based on a few simple standards.

This is not currently the case for software programmes running in the cloud. If you use a cloud service for your records or accounts, you are likely to find it more difficult to change to another similar service. And, if you use more than one cloud service, making them work together will be much harder than making a new router work with your ISP.

Choosing a supplier

Cloud can provide real benefits to small businesses, increasing efficiency, time-management, remote working potential and saving physical space, but there are also pitfalls to avoid. You should choose your cloud provider the same way you would choose any other supplier and ask a few crucial questions:

• Is the cloud service provider stable and trustworthy, with a reputation to lose?

• Are the conditions of contract reasonable and fair to you?

• Will it benefit your business?

Look before you leap when considering a cloud service, but if the answer to these questions is yes, don't be afraid to take the plunge.